Bank Negara says growth on track and sticks to 4% to 5% forecast

KUALA LUMPUR: Bank Negara is maintaining its growth forecast for the country this year at 4% to 5% but is closely monitoring the ongoing debt crisis in Europe, said governor Tan Sri Dr Zeti Akhtar Aziz.

“As of now, the prospect for moderation in growth in the global economy has already been priced in.

“But we recognise the risks that exist if Europe doesn't emerge with a solution to the evolving debt crisis that is unfolding,” Zeti said at a briefing on the Labuan Financial Services Authority's annual report 2011.

She added that should the solutions come, it would resolve many issues. Then, the growth projection would “remain intact”.

Zeti with the Labuan Financial Services Authority’s annual report 2011

However, should things get worse with deep recession taking place in Europe, all global economies would be affected, she said.

“But I would like to highlight that these are not new developments to the region. When the global economy suffered an economic contraction in 2008-2009, Malaysia was able to minimise the contraction to just over 1%,” Zeti said, adding that most countries in Asia then recovered rapidly.

Zeti said should a crisis happen again, Malaysia would be “able to emerge quickly” because the country did not have the kind of conditions prevailing in the crisis-affected countries.

Moreover, Malaysia had low unemployment, continued access to financing, low inflation rate and surplus on its balance of payment current account, she said.

“We have reserves buffer to insulate us from any impact of significant deleveraging and we have a more developed financial system that is able to intermediate the volatility that would emerge out of a major downturn,” she said.

Zeti believes that Asia would be able to rise to the challenge and emerge again to resume its growth potential.

She said the region had also become more cohesive and had come together in terms of surveillance and managing crisis, noting that it now had an integrated crisis management framework in place.

On the softer trade numbers announced recently, Zeti said: “Yes, our exports have declined but we have already priced that in. In fact, it only declined recently and we had expected the moderation to be happening earlier.

“The domestic economy is very strong. Consumption demand, private investment activity is very robust. Because of this, we are still confident it's going to be within the range (of economic growth projection).”

Asked if the current monetary policy would be maintained until year-end, she said it was reviewed at each monetary policy meeting. “The environment is very dynamic and monetary policy is a forward-looking policy.”

At its May 11 meeting, Bank Negara has kept its key interest rate at 3%. - The Star